56. The purpose of advertising is to make the demand for one's product __________.

A) less inelastic B) more inelastic C) more elastic D) horizontal

57. Monopolistic competitor is a small monopoly because:

1. Adjust output until marginal revenue equals marginal cost
2. Sets price equal to average variable cost.
3. Its product is differentiated from products of other sellers.
4. Maximizes the difference between marginal revenue and marginal cost.

59. In the short run, profits in a monopolistically competitive industry:

A) will be positive. C) may be positive or negative.

B) will be negative. D) will be equal to zero.

59. Refer to the graph above of a monopolistic competitor. According to the graph, economic profit is currently:

A) impossible to determine. B)positive. C) negative. D) zero.

60. Long-run equilibrium for firms in monopolistically competitive industries is similar to that for

firms in perfect competition in that:

A) price equals minimum possible average total cost.

B) price equals marginal cost.

C) marginal revenue equals average total cost.

D) price equals average total cost.

61. An industry with thousands of sellers selling differentiated products and a four-firm concentration

ratio of 12 is most likely:

A) perfectly competitive. C) monopolistically competitive.

B) a pure monopoly. D) oligopolistic.

62. The higher the concentration ratio in a given industry:

A) the closer the industry is to a perfectly competitive market structure.

B) the larger the market shares of the smallest four firms in the industry.

C) the larger the market shares of the largest four firms in the industry.

D) the smaller the market shares of the largest four firms in the industry.

63. An industry with a four-firm concentration ratio of 94 is most likely:

A) perfectly competitive. C) monopolistically competitive.

B) a pure monopoly. D) oligopolistic.

64. Several firms are operating in a market where they take the other firms' response to their actions into account. This market is:

A) a competitive market. C) an oligopolistic market.

B) a monopolistically competitive market. D) a monopoly.

65. Collusion is most likely occur in a(n):

A) monopoly. C) monopolistically competitive industry.

B) oligopoly. D) perfectly competitive industry.

66. A market has the following characteristics: There is strategic pricing, output is somewhat restricted, there is interdependent decision-making, and some long-run economic profits are possible. This market is:

A) a monopoly. C) monopolistically competitive.

B) an oligopoly. D) perfectly competitive.

67. The economic model of oligopoly assumes that firms use:

A) economic decision making. C) strategic decision making.

B) monopolistic decision making. D) competitive decision making

68. The cartel model of oligopoly assumes that:

A) a monopoly acts as if it is an oligopoly.

B) oligopolies act as if they were perfectly competitive.

C) oligopolies act as if they were a monopolist.

D) monopolistically competitive firms act as if they were monopolists.

69. A situation in which the dominant firm in an industry sets a price that is used by the other firms in the industry is called:

A) a cartel. C) implicit collusion.

B) monopolistic competition. D) the kinked demand curve model.

70. Suppose an oligopolistic firm assumes that its rivals will ignore a price increase but match a price cut.In this case the firm perceives its demand curve as being:

A) kinked. B) perfectly inelastic. C)linear. D) perfectly elastic.

71. Refer to the graph above. If a firm in a duopoly believes that if it raises price from P2 to P1, its rival will not go along, then it:

A) probably won't raise price since it will lose market share.

B) expects no loss in sales.

C) probably will raise price because lower output means lower costs and greater profit.

D) probably will raise price because when demand is inelastic, total revenue increases as price increases.

72. The theory of games is helpful in understanding the behavior of firms whose decisions are:

A) dependent on government regulations. C) independent.

B) interdependent. D) random.

73. A duopoly is most likely to produce ________ outcomes where there is ___________.

A) competitive; collusion but no cheating C) competitive; collusion and cheating

B) monopolistic; collusion and cheating D) monopolistic; no collusion and no cheating

74. Some form of collusion is more likely to occur if:

A) cheating is difficult to identify and firms play the same game against one another repeatedly.

B) cheating can be easily identified and firms play the same game against one another repeatedly.

C) cheating is difficult to identify and firms play the game only once.

D) cheating can be easily identified and firms play the game only once.

75. Refer to the graph above. If firm A expects firm B to cheat, A would be best off:

A) cheating to earn zero profit. C) cheating to earn $300,000.

B) not cheating to lose $300,000. D) not cheating to earn zero profit.

76. Refer to the graph above. The competitive solution for this duopoly is:

A) A gains $300,000 and B gains $300,000. C) A gains $800,000 and B gains $800,000.

B) Neither A nor B gain. D) A gains $800,000 and B loses $300,000.

77. Refer to the graph above. The non-competitive solution for this duopoly is:

A) A gains $300,000 and B gains $300,000. C) A gains $800,000 and B gains $800,000.

B) Neither A nor B gain. D) A gains $800,000 and B loses $300,000.

78. To prevent price wars and enhance profits, firms in an oligopolistic market industry may:

A) encourage foreign competition. C) establish a contestable market.

B) accept the price in the marketplace. D) cooperate with each other by fixing prices.